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External factors threatening Greek recovery

Impact of Russia-Ukraine conflict and uncertain European economic outlook feared by officials By Sotiris Nikas

At a time when the Greek economy is displaying what appear to be early signs of recovery, following six years of deep recession, a series of external factors are threatening to undermine the effort being made.

Developments between Russia and Ukraine could spark a number of negative factors for the national economy. Greek officials have also begun to openly express concern about the overall European economic outlook.

Amid the distress, both the Finance Ministry and the country’s creditor representatives, or troika, are re-examining the forecasts.

The Greek economy is expected to expand by 0.6 percent in 2014, while a growth figure of 2.9 percent has been forecast for 2015. The ongoing geopolitical developments are not expected to affect the national economy in 2014, even though the Russian embargo on many agricultural products has already gone into force. The same level of certainty, however, cannot be presumed for 2015.

Finance Ministry officials admit that a series of factors are posing a threat to the economic growth figure predicted for 2015.

The Russian ban on a number of agricultural products has significantly dented the country’s farming exports, both current and those anticipated in the coming months. This threat carries indirect implications. For example, Russian traders, expected to cover market needs with supply from other regions during the embargo, will not necessarily return to their original suppliers when the embargo is lifted. The medium-term fiscal plan foresees a 5.2 percent exports increase for 2015.

The conflict between Russia and Ukraine is also raising energy-related concerns. Greece depends on Russia, via Ukraine, for 60 percent of the country’s natural gas supply. Should the conflict intensify, Greece would be forced to turn to more expensive solutions, liquefied natural gas being the most probable, which would affect the trade deficit figure.

The 0.2 percent contraction of the German economy in the second quarter of 2014, along with a slight downward revision of the previous quarter’s growth figure, adds to Greece’s concerns over the prospects of Europe as a whole and the impact this would have on the national economy.

Another concern, geopolitical instability, would affect Greek tourism. The end-of-year tally for Russian tourists in Greece is expected to reach 1.3 million, their total spending figure forecast to exceed 1 billion euro.

It has become quite clear that wider developments in Europe are directly affecting the Greek economy. Any negative impact on the GDP figure would start a domino effect of consequences. If GDP growth forecasts are not achieved, this would make negotiations with the troika toward an easing of fiscal measures, as well as further debt relief, more difficult.